As the festive shopping season unfolds, online retailers are enticing consumers with the prospect of purchasing products through no-cost EMI offers. This means you can acquire your desired items in convenient installments without any additional interest or charges, presenting the illusion of an entirely interest-free transaction. However, the reality is more complex, and understanding the nuances of these no-cost EMIs is essential to avoid potential hidden charges.
The Appealing Facade of No-Cost EMIs
No-cost EMI offers extend the option for consumers to buy various products without the burden of additional interest or charges. In essence, you’ll be paying only the actual price of the product, conveniently divided into EMIs.
Several banks provide no-cost EMI facilities in various forms. While some offer zero-down payment plans, where you don’t need to pay anything upfront and can divide the cost into monthly installments, others may require a minimal down payment with the rest paid in EMIs.
No Interest, But Are There Hidden Charges?
“No-cost EMIs do not include interest rates or processing fees. Unlike regular EMIs that encompass these charges, in the case of no-cost EMIs, the total EMI amount paid throughout the tenure remains equivalent to the product’s price. The interest charge is typically absorbed by the seller or merchant, alleviating the interest burden on the consumer. In some cases, interest or processing fees are factored into discounts or cashbacks, ultimately making the total EMI value match the product’s actual price,” explains the process.
No-cost EMI offers often span 3, 6, or 9 months, subject to agreements between merchants and issuers. However, these terms can fluctuate, influenced by timing, issuers, products, and merchants.
The Hidden Fees
While these no-cost EMIs might appear attractive, it’s crucial to remember that there’s no such thing as a free lunch. Some lenders levy a processing fee on no-cost EMIs, effectively substituting it for interest charges. Furthermore, when opting for a no-cost EMI, you might forfeit the discount available for upfront purchases. In other words, if a product is being offered at a discounted rate for all customers, those opting for no-cost EMIs may end up paying the regular price.
Regulatory Insights
In 2013, the Reserve Bank of India (RBI) issued notifications scrutinizing no-cost EMI schemes. The RBI’s circular from 2013 elucidates that the idea of a zero percent interest or no-cost EMI is virtually non-existent. It explains how interest components can be hidden and passed on to customers in the form of processing fees or other charges.
No-Cost EMI Unveiled
Sakeerthi S, an Assistant Professor at ISME, Bangalore, suggests that these no-cost EMI offers are essentially marketing strategies devised by sellers and financial institutions. These zero-cost EMIs aren’t about “no costs” but rather “no visible costs.” There are two key approaches:
- Discount = Interest: Under this method, customers forgo discounts they would normally receive to cover the interest costs.
- Selling Price = Actual Price + Interest Cost: In this approach, the product is not discounted, and the interest amount is incorporated into the product’s price.
To illustrate, imagine you want to purchase a smartphone worth Rs 30,000 during an Amazon sale. If you choose a three-month EMI plan with a 15 percent interest charge, you’ll pay an interest amount of Rs 4,500. However, if you pay the entire amount upfront, you can acquire it for Rs 25,500. Opting for a no-cost EMI means you’ll pay the full price, i.e., Rs 30,000. Here, the interest amount is paid to the financing bank, and the remainder goes to the retailer.
The Hidden Reality: Potential Processing Fees
Experts, speaking on condition of anonymity, have disclosed that interest amounts in no-cost EMI schemes are typically bundled into the product’s price. Despite the enticing “no-cost” label, banks may impose processing fees, sometimes as high as Rs. 500, which may not be explicitly stated in the offer and could remain unknown to consumers. It’s important to remember that a “no-cost” EMI loan is still a loan and must be considered concerning its impact on your credit score.
